The COVID-19 pandemic severely disrupted global supply chains over the last year and a half, creating material shortages, high freight rates and other major changes. Now, as 2022 approaches, many manufacturers are wondering whether these disruptions will have any long-term impacts on international sourcing.
The Leeco Trading team is monitoring market conditions to gauge what implications the COVID-19 pandemic could have for international procurement as we move into a post-COVID environment. Here are some of the key changes our team is noticing.
Strong Imports Demand
Demand for manufactured goods is growing as global economies recover. However, raw material prices are rising due to shortages, supply chain disruptions and inflation. High domestic prices are prompting many manufacturers to consider imports in an effort to cut material costs.
Brazil, for example, is seeing demand for imported steel skyrocket as domestic steel prices rise. According to research conducted by ABIMAQ, a Brazilian manufacturing association, domestic steel prices in Brazil are about 30% to 40% higher than prices of imported steel. Even after taxes, customs and freight charges are factored in, imported materials remain 10% to 32% cheaper than domestic materials.
As a result, Brazilian manufacturers are turning to imported materials to save money. Data released by Brazil’s economic ministry shows that steel product imports rose 195.5% year-over-year from June 2020 to June 2021. Imports to other major economies in Latin America, like Mexico and Chile, are also on the rise.
With high inflation and supply chain disruptions expected to continue in 2022, domestic raw material prices could continue facing upward pressure, which could further drive strong imports demand.
Elevated Ocean Freight rates
Ocean freight rates skyrocketed in 2021 as commodity demand spiked during economic re-openings and port congestion increased. According to the Baltic Dry Index, which measures rates for barges that transport dry commodities, also increased 74% from January 2021 to July 2021.
While analysts expect ocean freight rates to pull back within the next couple years, they anticipate rates to remain higher than they were compared to pre-pandemic years.
Port congestion is one factor that analysts expect to continue through 2022. Barge demand is currently skewed towards to U.S. due to a stimulus-driven economic boom, leading to congestion within U.S. and Asian ports. Because demand – and, therefore, freight rates – on these shipping routes is high, many shippers are shifting their capacity to focus on barge freight to U.S. ports.
Not only is this capacity shift creating port congestion within the U.S., but it is also reducing available barges and containers for other shipping routes, pushing those shipping costs higher as well.
With fleet sizes and the number of available shipping containers not expected to increase until 2023, tighter capacity will likely place upward pressure on ocean freight costs for the next couple of years.
Related: The Impact of Rising Ocean Freight Costs on International Trading
Slow-To-Adjust Supply Chains
Global supply chains are starting to adjust to changes brought about by the pandemic, but the transition is slow, and supply chain disruptions remain in place. In addition to shipping container shortages and constrained barge capacity, many raw materials are facing shortages as demand outpaces production.
Semiconductor chips, in particular, have growing lead times and are disrupting several sectors that use them, such as automobiles and computers. As of July 2021, the lead time for semiconductors was 20 weeks, indicating to experts that the shortage is getting worse. Several executives at major auto companies anticipate the shortage to stretch into 2022 and have reduced vehicle production levels.
Navigating the International Trading Market
With the pandemic expected to create longer-term changes in various aspects of international procurement – from sourcing materials to coordinating freight – it can be challenging to understand how to best import the raw materials you need.
Leeco Trading has decades of experience in international trade and keeps a close eye on market indicators to help determine the best material sourcing options for our customers. With an extensive network of quality raw material suppliers across the globe, our team can also use its connections to help negotiate fair rates for your order.
Contact Leeco Trading today to request a quote or learn more.